Executive Briefings

Rough Waters for Southern California's Biggest Ports

By: Robert J. Bowman, SupplyChainBrain 09.18.2009

For a long time, the ports of Los Angeles and Long Beach were invincible. Year after year, they chalked up steady growth in container volumes, fighting for the title of number-one U.S. gateway for international ocean freight. There seemed to be no reason why the ports couldn't go on growing indefinitely. Until, of course, the recession gave them one.

Congestion used to be the ports' biggest concern. Now it's keeping Southern California's longshore workforce busy. The dismal picture is highlighted in a report released in the summer that was commissioned by the ports themselves. Jointly authored by The Tioga Group, Inc. (www.tiogagroup.com) and IHS Global Insight (www.globalinsight.com), it makes no bones about the impact that the current economic crisis has had on port activity in San Pedro Bay.

Containerized trade growth "has been set back 6-7 years," the report says. It doesn't expect the two giants to match their 2006 peak volume of 15.8 million twenty-foot equivalent units (TEUs) until around 2013. (Last year's total was approximately 15.3 million TEUs.) And the 36.7 million TEUs that were projected for 2020 back in December of 2007? Now they won't be achieved until some time after 2030.

As if that weren't bad enough, Los Angeles and Long Beach have seen their market share slip. They've lost business to U.S. East Coast ports - thanks to increased reliance by trans-Pacific carriers on the Panama Canal - as well as other West Coast facilities that benefited from the severe congestion that plagued San Pedro Bay just a few years ago. Even now, with delays no longer a factor in port choices, carriers prefer to spread their business around. While no line has abandoned Southern California altogether - the region's immense local population alone makes that prospect highly unlikely - the two ports have lost between 3 and 4 percent of market share since 2006.

So what happened? Only the worst recession since World War II. Symptoms include higher fuel prices, rising inflation and higher unemployment. All will serve to dampen future trade growth, the study says. "The recession and international container trade are expected to hit bottom in late 2009," it states, "with modest growth resuming in 2010. This forecast is consistent with current thinking in the container industry."

Port of Long Beach (www.polb.com) spokesman Art Wong calls the report "a very conservative estimate" of how the ports will fare in the near future. He points out that Long Beach has quadrupled its activity over the last 20 years. But all good things must come to an end - or at least a slowdown. For the first half of this year, container activity at Long Beach was down about 25 percent from the prior year. The port expects its year-end total to be in the 5.1 million-TEU range. That compares with 7.3 million TEUs in 2006.

Time to look for the silver lining. Some development projects at Long Beach have already been slowed by environmental-compliance requirements, Wong says. "We've been kind of behind schedule," he admits, adding that the slump "will really give us a chance to catch up [and] upgrade our facilities." The port is still planning to fill in some small berths to create additional land and make room for bigger ships. It also expects that work will continue on the expansion of a railyard at the ocean terminal run by International Transportation Service (a sister company of Japan's "K" Line), and the upgrading of two other container terminals.

Reached for comment, the Port of Los Angeles (www.portoflosangeles.org) responded with a statement pointing out that the report "does not predict a dramatic loss of market share to other ports, and the effect of the future Panama Canal expansion on the ports is still expected to be small." Nevertheless, it says, the ports aren't likely to reach their combined capacity of 43m TEUs, originally thought to occur in 2023, until 2035.

L.A. reads the study as proof that both ports "need to move forward with their proposed infrastructure expansion projects to handle future growth. The recession has delayed when expansions are needed," the port adds, "but it has not changed the underlying fundamentals that will continue to drive trade through the ports over the next 25 years."

The only question is: how long will it take for those fundamentals to turn things around?

- Robert J. Bowman, SupplyChainBrain

Comment on This Article

For a long time, the ports of Los Angeles and Long Beach were invincible. Year after year, they chalked up steady growth in container volumes, fighting for the title of number-one U.S. gateway for international ocean freight. There seemed to be no reason why the ports couldn't go on growing indefinitely. Until, of course, the recession gave them one.

Congestion used to be the ports' biggest concern. Now it's keeping Southern California's longshore workforce busy. The dismal picture is highlighted in a report released in the summer that was commissioned by the ports themselves. Jointly authored by The Tioga Group, Inc. (www.tiogagroup.com) and IHS Global Insight (www.globalinsight.com), it makes no bones about the impact that the current economic crisis has had on port activity in San Pedro Bay.

Containerized trade growth "has been set back 6-7 years," the report says. It doesn't expect the two giants to match their 2006 peak volume of 15.8 million twenty-foot equivalent units (TEUs) until around 2013. (Last year's total was approximately 15.3 million TEUs.) And the 36.7 million TEUs that were projected for 2020 back in December of 2007? Now they won't be achieved until some time after 2030.

As if that weren't bad enough, Los Angeles and Long Beach have seen their market share slip. They've lost business to U.S. East Coast ports - thanks to increased reliance by trans-Pacific carriers on the Panama Canal - as well as other West Coast facilities that benefited from the severe congestion that plagued San Pedro Bay just a few years ago. Even now, with delays no longer a factor in port choices, carriers prefer to spread their business around. While no line has abandoned Southern California altogether - the region's immense local population alone makes that prospect highly unlikely - the two ports have lost between 3 and 4 percent of market share since 2006.

So what happened? Only the worst recession since World War II. Symptoms include higher fuel prices, rising inflation and higher unemployment. All will serve to dampen future trade growth, the study says. "The recession and international container trade are expected to hit bottom in late 2009," it states, "with modest growth resuming in 2010. This forecast is consistent with current thinking in the container industry."

Port of Long Beach (www.polb.com) spokesman Art Wong calls the report "a very conservative estimate" of how the ports will fare in the near future. He points out that Long Beach has quadrupled its activity over the last 20 years. But all good things must come to an end - or at least a slowdown. For the first half of this year, container activity at Long Beach was down about 25 percent from the prior year. The port expects its year-end total to be in the 5.1 million-TEU range. That compares with 7.3 million TEUs in 2006.

Time to look for the silver lining. Some development projects at Long Beach have already been slowed by environmental-compliance requirements, Wong says. "We've been kind of behind schedule," he admits, adding that the slump "will really give us a chance to catch up [and] upgrade our facilities." The port is still planning to fill in some small berths to create additional land and make room for bigger ships. It also expects that work will continue on the expansion of a railyard at the ocean terminal run by International Transportation Service (a sister company of Japan's "K" Line), and the upgrading of two other container terminals.

Reached for comment, the Port of Los Angeles (www.portoflosangeles.org) responded with a statement pointing out that the report "does not predict a dramatic loss of market share to other ports, and the effect of the future Panama Canal expansion on the ports is still expected to be small." Nevertheless, it says, the ports aren't likely to reach their combined capacity of 43m TEUs, originally thought to occur in 2023, until 2035.

L.A. reads the study as proof that both ports "need to move forward with their proposed infrastructure expansion projects to handle future growth. The recession has delayed when expansions are needed," the port adds, "but it has not changed the underlying fundamentals that will continue to drive trade through the ports over the next 25 years."

The only question is: how long will it take for those fundamentals to turn things around?